Archive forNovember, 2012

For any investors who have ever attracted charges of unwarranted risk aversion through not wishing to invest in banks in Britain or elsewhere on the grounds of lack of transparency, a degree of vindication comes with the revelation that even the Bank of England, in the form of its new Financial Policy Committee, appears to be uncomfortable with their basis of asset valuation and risk assessment and feels that further capital raising is required to strengthen balance sheets more.

Industrial output unexpectedly increased 1.8% in October, defying expectations of a 2.2% fall after a 4.1% decline in September. Core consumer prices remained flat on y-o-y basis, while household spending rose 0.6% m-o-m in October. However, the Markit/JMMA Japan Manufacturing Purchasing Managers Index dipped to a seasonally adjusted 46.5 in November from 46.9 in October.

The European Commission approved the restructuring of Spain’s struggling nationalized banks yesterday. This approval paves the way for Eurozone to disburse around €40bn from its permanent ESM bailout fund, potentially marking a turning point in the country’s banking crisis.

The OECD estimates the global economy to expand 2.9% in 2012 and 3.4% in 2013, a sharp downgrade from the forecast of 3.4% and 4.2%, respectively, in May. The OECD lowered its forecast for US economic growth to 2% for 2013 from 2.6% earlier and cited the US fiscal cliff as a major impediment to global growth. It forecasts the Eurozone to contract 0.4% in 2012 and 0.1% next year, and also lowered China’s 2013 growth forecast to 8.5% from 9.3%.

After a thirteen-hour session into the small hours apparently beloved by EU ministers, the news of the successful resolution of Greece’s debt restructuring programme came too late for most U.K. newspapers this morning. Continuing yesterday’s Macbeth theme, the strange brew of ‘hubble bubble, toil and trouble’ apparently did the trick with the short-form ‘bubble’ conveniently bringing in a cockney rhyming slang reference to Greece (as in ‘bubble and squeak’, Greek ). Prescient man that Shakespeare although, actually, the play refers to ‘double double’. Anyway, mustn’t let the facts get in the way.

Greece’s lenders agreed on a series of measures to lower the country’s debt by €40bn, reducing it to 124% of GDP by 2020; thus releasing the urgently needed aid to keep the economy afloat. To reduce the Greek debt burden, Eurozone ministers agreed to cut the interest rate on official loans, extend their maturity by 15 years to 30 years, and allow Greece a 10-year interest repayment deferral.

When shall we three meet again? In thunder, lightning, or in rain? When the hurlyburly’s done, when the battle’s lost and won. That will be ere the set of sun. The familiar lines from the three witches in Shakespeare’s Macbeth might resonate with the members of the Troika – the European Commission, the European Central Bank and the International Monetary Fund – who are to reconvene this morning to try to finally conclude a deal on Greece’s outstanding sovereign debt which still leaves the country with a reasonable chance that its debt-to-GDP ratio will be down to 120% by 2020. It is just not clear which lucky minister will end up with ‘the eye of newt and toe of frog’, undoubtedly all vital ingredients for any successful negotiations.

Tracking developments in economies and markets globally is a natural part of today’s ‘plugged-in’ generation of investors, but how do we deal with the inevitable information overload and potential loss of perspective? Mike Franklin, Head of Investment Strategy at Beaufort International Associates, gave the lecture below entitled ‘Surfing the Investment Zeitgeist’ at The World Money […]

With Wall Street closed yesterday for Thanksgiving Day, the quieter tone around markets provides an opportunity to take a closer look behind some of the associated events such as ‘Black Friday’. The day after Thanksgiving, Black Friday is generally regarded as the start of the Christmas buying season in the U.S.. Given the heightened pressure of sales promotions such as stores opening just after midnight and offers of heavy discounts, the volume of retail sales during Friday and the ensuing weekend is monitored closely for clues as to the level of underlying consumer confidence and spending power.

Prospects of a deal on the EU’s 2014-2020 budget dimmed as the European Council bowed to pressure from France and Poland to hold back the proposed cuts in agricultural subsidies and regional development funds. Germany has asked for further cuts of around €30bn, while Britain and the Netherlands are seeking a reduction of €50-75bn. German Chancellor Angela Merkel said that an agreement was still far away with a deal unlikely in this week.

However tentative it may turn out to be, the news of the ceasefire by Israel and the Palestinians has to be welcome. Thankfully, the threatened Israeli ground invasion did not materialise on this occasion and this restraint engenders some hope that efforts towards a more permanent resolution of the situation will be successful.

China’s HSBC Flash Manufacturing Purchasing Managers Index (PMI) rose to 50.4 in November, expanding for the first time in 13 months; this indicates a rebound in economic growth after a slowdown over the last seven quarters. The output sub-index expanded to 51.3, the highest since October 2011.

It is fascinating to observe the past appear to reach forward to the present day. The name Marshall McLuhan may not be familiar to so many these days but he was a prominent philosopher of Communication Theory in the late 1960’s, coining the phrases ‘global village'(thirty years before the World Wide Web emerged) and ‘the medium is the message’. The news that Hewlett Packard, itself an icon in the 60’s, has written down the value of its $10 billion 2011 acquisition by a staggering $8.8 billion raises many questions.

Japanese exports fell 6.5% y-o-y in October, the fifth consecutive month of decline in annual terms, the Finance Ministry said today. Shipments decreased 2.3% y-o-y to ¥53.5trln in the 10 months to October, resulting in a fourth straight monthly trade deficit. Shipments to China dipped 11.6% y-o-y, after a 14.6% drop in September.

In accordance with the physical laws of the investment world, after the rally comes the slide. As concerns about the U.S. budget negotiations receded and hopes of, at least, a ceasefire in the Gaza-Israel conflict rose, global markets had a good day on Monday with gains of 2%-plus commonplace. However, as if it were now Europe’s turn to reoccupy centre stage, after a near 3% rise yesterday, France’s CAC Quarante Index has given up around 0.4% so far this morning – along with similar falls elsewhere in Europe – on the early news that credit agency Moody’s has cut France’s credit rating from the top grade of Aaa to Aa1 and is maintaining a negative outlook for the country.

Foreign direct investment (FDI) in China fell 0.2% y-o-y to US$8.3bn in October, the Ministry of Commerce said today. FDI inflows during the first 10 months of the year declined 3.5% to US$91.7bn, marking the 10th straight month that aggregate year-to-date flows have fallen compared to the previous period.

What, in human terms, could possibly put Wall Street’s concerns about the Fiscal Cliff in perspective ? Well, for starters, you could try a revival of an old-fashioned conflict between two long-time enemies in the Middle East. As missiles rain down for a sixth day in Gaza and Israel and fatalities mount up, there seems to be no immediate prospect of a ceasefire.

Home prices in China edged up 0.05% m-o-m in October, said the National Bureau of Statistics. On y-o-y basis, home prices were down 1.1% in October after dropping 1.3% in September. New home prices rose in 35 of the 70 major cities, with prices in Beijing rising 0.2%, while that in Shanghai remaining flat.

Japanese government cut its view of the economy for the fourth successive month in November, citing deteriorating corporate capital spending, compounded by the Eurozone debt crisis and a slowdown in China. In a bleak assessment, the government said falling exports and declining factory output remained key concerns.

The catch-up boom in China, India, Brazil is largely over and will be followed by a drastic slowdown over the next decade, according to a grim report by America’s top forecasting body. Europe’s prognosis is even worse, with France trapped in depression with near zero growth as far as 2025 and Britain struggling to raise its speed limit to 1pc over the next three Parliaments. The US Conference Board’s global economic outlook calls into question the “BRICs” miracle (Brazil, Russia, India, China), arguing that the low-hanging fruit from cheap labour and imported technology has already been picked.

With Wall Street and London effectively unchanged and European markets, on average, only slightly changed lower, Monday was a day of ‘marking time’. Speculation continued to focus on signs of progress in the U.S. budget negotiations while the slow-motion car crash that is Greece continued to mesmerise. ‘Cliff talks’ are scheduled to start on Friday between the President and members of Congress on how to work through the impasse.

The stock-market debut of the telecoms company MegaFon is set to go ahead despite concerns raised about the editing of the Wikipedia entry of the billionaire oligarch behind the deal. Alisher Usmanov, who has a big stake in Arsenal, is set to launch one of the largest stock-market listings in London with MegaFon, which is expected to be valued at more than $12 billion.

In a week that saw 57% of the population of the United States elect, for a second term, their President with a majority of Electoral College votes of 332 to 206 – 61% of the total 538 seats – after Florida finally reported in, it looks slightly strange that the S&P 500 should fall by a net 2.4% over the period. Of course, as mentioned in the Beaufort Daily after the election outcome was known, it is not inconsistent for the market to look beyond the result at the implications for the budget negotiations. Some commentators have suggested that the implied strength of President Obama’s mandate will provide him with moral advantage in talks with the Republican-controlled House of Representatives but it is not clear how far this argument will carry given that his share of the popular vote was much slimmer at 51% to Mitt Romney’s 48%. Anyway, the dashed hopes of a Romney win and easier regulation on the sector left financials as major casualties over the week.

Japan’s GDP shrank 0.9% in Q3 2012, the first contraction in three quarters, government data showed today. This fall translated into an annualised 3.5% decline, raising fears that the economy was sliding into recession. Meanwhile, Chinese exports jumped 11.6% y-o-y in October, the fastest pace since May, beating expectations of a 9% increase.

Firstly, a ‘thank you’ to ECB President Mario Draghi for retaining a sense of playful irony at the heart of the Eurozone project. His revelation yesterday that a new five-euro banknote is to be issued showing scenes from Greek mythology also displays a certain lack of awareness of likely public reaction. Call me a cynic ( actually, also inherited from Ancient Greece) but, the depicted ‘abduction’ of Europa by Zeus in the form of a bull (perhaps some grounds for encouragement for markets there) looks symbolic of other forms of ‘abduction’ visited on non-Greek members of the Eurozone in more recent times. Meanwhile, I am trying to disassociate in my mind the cost of printing new currency just as the U.K. is being expected to increase its contribution in real terms to the European Union budget.

In the event, Wall Street’s sentiment could not match the soaring rhetoric of President Obama’s acceptance speech. The dramatic post-election sell-off on Wall Street yesterday, which felt almost cathartic, bears some analysis for the factors driving it. Down by around 2.8% at its lowest (down 1.2% at the open), the S&P 500 Index rallied by over 1% before fizzling out to close a net 2.4% lower on the day. Certainly, concerns about how the Fiscal Cliff negotiations might pan out were claimed to be part of the reason for the blood-bath even though this has been a topic of discussion by commentators on the U.S. markets for several months.

The Eurozone economy would grow just 0.1% in 2013, after a larger-than-estimated 0.4% contraction this year, the European Commission said yesterday. However, growth is expected to rebound 1.4% in 2014. The EU forecasts Germany to expand 0.8% this year, and a marginal 0.8% in 2013 versus Berlin’s forecast of 1%. France would grow just 0.2% and 0.4% in 2012 and 2013, respectively, versus Paris’ forecast of 0.3% and 0.8%

As the pizzazz, hoopla and tears subside after another U.S. Presidential Election and the cold light of reality returns, as inevitably it must, the big question hanging in the air is ‘what now ?’. At their core, elections are expected to contain a sense of justice and the belief that the nation elected the candidate they wanted and, perhaps even, needed. At the time of writing, the Democrats have won 303 votes at the Electoral College out of the total of 538 votes available and comfortably above the 270-vote threshold for victory with the Republicans at 206 votes, leaving a balance of 29 yet to be assigned.